Archive for May, 2009

Owners, not patrons

May 27, 2009

The government is poised to acquire ownership of 70% of General Motors, ostensibly in a move that will smooth out GM’s restructuring. As the Times reports:

The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M. Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required. …

The prospect of a G.M. effectively owned by the government raises a number of thorny questions. Countless policy decisions — on matters such as fuel economy standards, tax incentives to replace aging cars and green technology initiatives — will present conflicting interests. …

Aides to President Obama have consistently said they would be reluctant shareholders, and they plan no operating role in the company.

“No one is going to put U.S. government employees on the G.M. board,” one person close to the ongoing discussions said on Tuesday.

The day-to-day running of the firm, this person said, would be left to professional managers, and the government would not be involved in decisions about closing factories, renegotiating contracts or selecting product lines.

There is a strong cultural obligation for the Obama administration to keep their hands off of business, even businesses in which the government would own a controlling stake. Not surprisingly, even with these reassurances there have followed the inevitable wisecracks about socialism and government-run enterprise. While American tolerance for most state-run businesses may be low, it is simply bad policy to rely on “professional managers” to bring GM back from capitalist Limbo. After all, GM has been in some form of restructuring for decades under the steering of “professional managers,” and has neither fully recovered from its market losses in the 20th century, nor successfully avoided collapse in this recession. How badly have “professional managers” mishandled GM? Consider this:

The automaking losses have put GM in the kind of financial position lately associated with dying airlines and retail chains. The company has been frantically seeking cash to meet its financial obligations. GM has sold stock and tapped credit markets to raise $5 billion in the past year alone, mostly to pay operating expenses. If the financial squeeze grows too tight, GM might even file for bankruptcy protection under Chapter 11 to force concessions in its wage, pension and benefit packages.

Thus wrote Time in 1992. Professional managers have not saved GM in the past, and it is odd to think they will do so in the future. Rather than the government merely becoming patrons of the same managerial cadre, it should carefully consider taking that dreaded active role, and finally changing the (faulty) way GM does business.